Canada’s $40bn Submarine Deal: A Bid for Economic Independence from US
Canada is leveraging a major defence contract – a $40 billion submarine project – to bolster its economic independence and secure investment in key civilian sectors. This strategic move comes as trade relations with the United States have become strained, prompting a re-evaluation of economic dependencies.
A High-Stakes Bidding War
The competition to build 12 diesel-powered, 3,000-tonne submarines, capable of operating in Arctic conditions, pits South Korean conglomerate Hanwha against a joint venture between Germany’s Thyssenkrupp and Norway. Final bids are due next month. Prime Minister Mark Carney’s government is using this contest to maximize benefits beyond simply acquiring submarines.
Economic Leverage
Ottawa is requesting commitments from both bidders that extend beyond defence, seeking investments in areas like steel, cars, energy, and mining. This approach reflects a broader plan to double trade with non-US partners over the next decade and reduce reliance on the American economy. The government is also revisiting a previously planned purchase of 88 F-35 fighter jets from the US.
Recent economic indicators underscore the urgency of this diversification strategy. Canada’s economy shed 24,000 jobs last month, with the manufacturing sector being particularly hard hit. Layoffs at General Motors plants in Ontario, and among its suppliers, further illustrate the vulnerability of Canadian industries to US trade policies.
Seeking Reciprocal Benefits
Canada’s strategy, described by Xavier Delgado of the Conference of Defence Associations Institute as “his version of the art of the deal,” involves actively soliciting investment commitments from potential submarine providers. South Korea’s President Lee Jae Myung’s chief of staff, Kang Hoon-sik, revealed that Canada’s foreign minister, Mélanie Joly, specifically requested automotive investments from Hyundai, suggesting that Volkswagen might also be willing to offer incentives.
Hanwha has already responded with a C$345 million (US$253 million) memorandum of understanding to build a new steel beam mill with Algoma Steel in Ontario, a company recently impacted by US tariffs. They have also forged agreements with Canadian firms in artificial intelligence, satellites, and software.
Geopolitical Implications
For South Korea, securing the Canadian contract is seen as a pivotal step towards becoming the world’s fourth-largest defence exporter, capitalizing on increased demand from Europe due to the conflict in Ukraine. Germany, through Thyssenkrupp, aims to strengthen its partnership with Canada within the NATO framework, offering joint training and logistical support.
Stephen Fuhr, Canada’s secretary of state for defence procurement, emphasized the need for a new approach, stating, “We have to do things differently.” He affirmed that while Canada values its relationship with the US, We see seeking to reduce its over-reliance on its southern neighbour.
Frequently Asked Questions
What is the primary goal of Canada’s approach to the submarine contract?
The primary goal is to leverage the contract to secure investments in civilian sectors and reduce Canada’s economic dependence on the United States.
Which companies are competing for the submarine contract?
The competition is between South Korean conglomerate Hanwha and a joint team led by Thyssenkrupp (Germany) and Norway.
Has Canada already seen any economic benefits from this strategy?
Yes, Hanwha Ocean has signed a C$345 million memorandum of understanding with Algoma Steel to build a new steel beam mill in Ontario.
As Canada navigates these complex negotiations, what long-term effects might this shift in procurement strategy have on its international relationships and economic future?